Vanguard offers a number of appealing ASX exchange-traded funds (ETFs) that give investors exposure to different groups of shares in a single investment.
For example, investors can access the Australian share market through the Vanguard Australian Shares Index ETF (ASX: VAS), which tracks the 300 shares listed on the S&P/ASX 300 Index. To gain exposure to the global share market, they can invest in the Vanguard MSCI Index International Shares ETF (ASX: VGS).
However, some Aussies may be cautious about investing in the share market because of the share price volatility that can occur. What if there was an ASX ETF that could give some access to the share market but with less risky exposure?
Vanguard offers the Vanguard Diversified Conservative Index ETF (ASX: VDCO), which may be just what nervous Aussie investors are looking for.
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Defensively positioned
Some readers may already have heard of Vanguard Diversified High Growth Index ETF (ASX: VDHG), which is primarily invested in growth assets.
The more conservative VDCO ETF invests in the same sort of asset groups but with very different percentages.
Its target for growth assets is:
- 12% weighting to Australian shares
- 8.5% weighting to international shares
- 5.5% weighting to International shares (hedged)
- 2% weighting to international small companies
- 2% weighting to emerging market shares.
Altogether, the VDCO ETF has a total target weighting of approximately 30% to growth assets.
The rest of the portfolio is invested in defensive/income assets that can deliver appealing income levels with less volatility.
These are the current weightings for the conservative assets:
- 42% weighting to international fixed interest (hedged)
- 18% weighting to Australian fixed interest
- 10% weighting to cash.
Between them, these defensive positions have a total target position of 70%.
Low fees for a diversified portfolio
The cost of ASX ETFs is normally an important factor in returns, so I'll make a quick mention of the annual fee of this fund.
Considering the high level of diversification in this portfolio, I think the VDCO ETF's annual management fee of 0.27% is very reasonable.
Conservative returns
This ASX ETF is designed to lower risk, but that also means it may produce lower rewards over the long term.
The ETF was constructed in November 2017 and has experienced a low interest rate environment during that time, reducing the returns from its defensive assets. It also suffered from the bond sell-off in 2022 amid the rising interest rate environment. Since its inception in November 2017, this ASX ETF has only returned an average of 3.76% per annum.
But there are other options for cautious Aussies.
Another diversified Vanguard ETF called Vanguard Diversified Balanced Index ETF (ASX: VDBA) provides a 50/50 split between growth assets and income/defensive assets. Since its inception in November 2017, the VDBA has returned an average of 5.5% per annum.
Of course, a third option would be for investors to mix and match how much in defensive ASX ETFs they want to own themselves. Two ETF options include Vanguard Australian Fixed Interest Index ETF (ASX: VAF) and Vanguard Global Aggregate Bond Index (Hedged) ETF (ASX: VBND), which are local and global funds.
While the VDCO ETF is the most invested in bonds, it hasn't performed well in recent years, and its setup didn't protect investors from capital declines during 2022. As a relatively young investor, I'm more drawn to investing in shares for the long term because of the stronger return and compounding potential.
